U.S. Securities and Exchange Commission
Litigation Release No. 20436 / January 23, 2008
Securities and Exchange Commission v. AirTrac, Inc., Clarence Friend et al., Case No SACV 06-0582-JVS (RNBx)
District Court Grants Summary Judgment Against Defendants AirTrac, Inc. and Clarence Friend
The Securities and Exchange Commission (“Commission”) announced today that on January 16, 2008, the U.S. District Court for the Central District of California, Judge James V. Selna presiding, granted the Commission’s Motion for Summary Judgment Against AirTrac Inc., a Nevada Corporation, based in Irvine California, and against Clarence Friend, an individual residing in Orange County California (“Friend”). The Court entered a Revised Final Judgment of Permanent Injunction, Disgorgement, Prejudgment Interest and Civil Penalties against both AirTrac and Friend.
According to the Commission’s Complaint, AirTrac had purported to develop and market voice-activated applications that allowed users to access the Internet and check e-mail through cellular telephones and personal digital assistants. The Commission also alleged that between January 2004 and April 2005, the defendants offered and sold AirTrac stock and raised nearly $1.8 million from over 200 investors nationwide. The company failed to register the securities with the Commission.
The district court found that the sales of AirTrac stock were unregistered and that no applicable exemption from registration was available for their sale, either under federal law or California state law. The Court also found that the defendants made three separate false misrepresentations to AirTrac investors. First, defendants falsely represented that Airtrac was only weeks away from conducting an Initial Public Offering (“IPO”). Second, the defendants falsely told investors that the company was on the verge of very lucrative contracts with several major telecommunications companies. Third, Friend and AirTrac misrepresented to investors the use of proceeds raised from investors. The Court found that each of these misrepresentations was material. The Court also found that Defendant Friend had acted as an unregistered broker in selling the AirTrac stock. In granting summary judgment in favor of the Commission on all counts, the Court found that the defendants had failed to raise a genuine of material fact which would have precluded summary judgment.
The Court enjoined AirTrac and Friend from future violations of Section 5 and 17(a) of the Securities Act of 1933 (Securities Act”) and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder. The Court also enjoined Friend from future violations of Section 15(a) of the Exchange Act. The Court awarded equitable disgorgement of $273,487.87 against Friend and $1,759,542.28 against AirTrac (less any amount actually disgorged by Friend) and also awarded prejudgment interest in the amount of $18,008.22 against Friend and $115,859.70 (less any interest that Friend in fact pays) against AirTrac. The Court awarded a third–tier penalty of $130,000 against Friend and separately a third-tier penalty of $130,000 against AirTrac.